AGL Energy (AGK)

Morgan Stanley has upgraded
AGL Energy
to “overweight" from “equal-weight" and lifted its price target to $16.40 from $15.25 to account for the acquisition of the 67.5 per cent it doesn’t already own of the Loy Yang “A" power plant.

The broker describes the plant as a low-cost generator with a captive, long-life fuel source that sits at the bottom of the cost curve. The deal will extend AGL’s vertical integration and is estimated to be largely valuation neutral this year but 3 per cent earnings per share accretive in 2012-13.

AGL has also launched a $900 million rights issue that will enable it to fund it heavy capital expenditure program, and management has reiterated its 2011-12 earnings guidance of between $470 million and $500 million.